The company’s long-term issuer default ratings were lowered
to BBB-, the lowest investment grade, from BBB with a stable
outlook, Fitch said in a statement. “Net leverage will increase
sharply” to three times funds from operations, it said.

Rosneft’s total debt soared to $72.6 billion after it spent
$55 billion to acquire TNK-BP this year, becoming the world’s
largest traded oil producer. The company’s subsequent
acquisitions of Itera, Taas Yuriakh, Alrosa’s gas assets and a
stake in SeverEnergia will further drain cash flows, Fitch said.

“Rosneft has ambitious development plans, both in upstream
and downstream,” the ratings service said today. “Capex will
remain high, resulting in negative free cash flow before
dividends in 2014.”

State ownership gives the energy company a “one-notch
uplift” in ratings, Fitch wrote. Even so, the scale of
Rosneft’s oil production, at about 40 percent of Russia’s total
output, may strain that support should crude prices slump for a
prolonged period, it said.